Hi there. Thank you for coming to Hysan Development's 2018 interim results announcement session. Let me introduce our panel for this afternoon, our Chairman, Ms. Irene Lee, our Chief Operating Officer, Mr. Ricky Lui, and our Chief Financial Officer, Mr. Roger Hao. We will start today's session with a presentation from Irene, Roger, and Ricky. We will follow that with time to take some questions from the floor. As we have a live webcast today, we will also be taking questions online. Before all that, I will invite Irene to start. Irene?
Thank you. I cannot believe it has been six months. We are here to present our 2018 first half results. Let us launch into a few figures, which I know you will be most interested in. Our turnover and recurring underlying profit increased by 6.8% and 4.3% respectively year-on-year. There was also increased reported profit, which reflected changes in fair value of investment properties. The occupancy for the retail portfolio was 96%, whereas office was 95%. Let us take a look at the bigger picture. Hong Kong's economy grew by 4.7% in the first quarter of 2018, and retail sales happily also grew by 13.4% in the first half of the year when compared with the respective periods in 2017.
This is due mainly to strong consumer spending, backed by good labor market and a bullish residential property market. Also, y ear-on-year growth of visitors' numbers was about 10% in the first half, with an even higher percentage increase for mainland visitors. The picture looks rosy, but i t is worth remembering, we will always have a note of caution that the ongoing concerns about international trade policies and other macroeconomic issues may yet affect growth.
As for Hysan, we continue to curate unique content for the Lee Gardens community, a community that is inclusive, full of contrast and diversity. We believe we are truly the heartbeat of Hong Kong. Why are we the heartbeat of Hong Kong? This is a little bit of a different analyst briefing. We do a little bit of history first. Lee Hysan purchased Lee Gardens exactly 95 years ago. It used to be a hill that runs from the shoreline in a somewhat north-south direction.
In the 1920s and 1930s, it became an amusement park that helped entertain many local residents. Lee Theatre was also completed in the 1920s, which served as a premier performing stage for Hong Kong public. Throughout the years, we also built the Lee Gardens Hotel, which was the island's first quality hotel catered for mass tourism, as well as a number of iconic commercial buildings. We have always held our mindset of developing the Lee Gardens area based on sustainability, which means all stakeholders can enjoy the area and development, not just for now, but for generations to come. After all, we have been here for many generations.
We want this area to be unique, full of things you will enjoy about Hong Kong, shops covering the entire price range, from traditional businesses to designer labels, delicious cuisines from all over the world, wide avenues full of trees. We are very proud of that. All mixed with treasured older buildings and our high-tech co-working offices, our beautiful new Lee Garden Three, and of course, the people, those who work in the offices, customers in our shops, neighbors who have owned and run businesses for decades.
Lee Gardens, Causeway Bay, and indeed Hong Kong are ever-changing. We are curating the content just like we are providing the heartbeat for the city and district to energize and grow. Having explained why we are the heartbeat, let me just quickly show you how we do it, how we come to be the pulsating heart of Hong Kong. It boils down to vision, courage, and persistence. For those of you who might have read our annual report, you might remember the pot. Why are we calling it the vision?
We used this melting pot as an analogy in our annual report last year, and we think it is appropriate to show it again. You see the three, what do you call those? Oblong— T he three circles around my pot. What are they? We are blessed with a credible location for commercial buildings and shops. We, the company, have a mindset for constructing and managing top-quality buildings. Lastly, we have a very unique neighborhood.
However, what are we facing now? Then now we look at the fire which is boiling the pot. We are facing a generational shift. The demands from the mature users are very different from Gens X, Y, and Z. Technological advancement, of course, because that's where everyone seems to focus on, is just the technology side. Yes, that is important too. We have e-commerce, we have online, offline, we have mobile technology, social media.
They are all shaping and influencing the how, what, and where. Demographic changes. Now, this is a very important point. Hong Kong is not one type of Hong Kong people. We are Old Hong Kong, people who have been here for generations like our family. We have migrants who have come to Hong Kong for family, for work, for many reasons. These people are also Hong Kong people now. We call them New Hong Kong. New Hong Kong are the people who have been here for decades. Their children go to school here and they hold Hong Kong IDs, so they are part of our fabric.
Of course, there are tourists. Now, this is the fire, the fuel that drives us to better ourselves in order to respond to this changing landscape. We need to reimagine our retail, and we need to reposition our office, because all of that is being influenced and disrupted by these new forces. But we need to also have content, ever-changing content that wraps around our hardware. So content is the softest of the software that we can provide, and that binds us into a very unique environment.
Let me give you an example and explain what we mean by courage. I want to give you an example of LG3, Lee Garden Three, our new building. Here we challenge ourselves to build and manage a predominantly office building that aims to attract the most demanding type of tenants who need the highest standards in a commercial setting. You may know who I am talking about. We actually attracted one of those, many of those.
It is the first Hysan commercial building with a focus on attracting financial institutions. But in the overall portfolio, we still have a very well-balanced portfolio of under 25% exposure to financial institutions. LG3 is also a place where we are promoting top-quality co-working space. We have identified that as a big disruptor in the office sector, and we have committed ourselves to making sure we have that as part of our portfolio.
The building itself is also fully equipped to match the needs of a new generation of office users. We highlight lifestyle and wellness. You will see that we actually have no high brands in that building. It is lifestyle, health and wellness, and lots of interesting food and beverage. We also have the first running track in Hong Kong on level 15. I have got it right now this time, right?
Yes.
Lee Garden Three only forms one part of a much larger portfolio. We always curate not for the shop that is vacant or the building that is being filled. We actually curate for the whole portfolio. We will use the opening of Lee Garden Three to further energize and draw attention to the rest of our portfolio. You will see that although we had a soft launch in April, we are constantly promoting different aspects of the building as we open different offerings, tenants, F&B, et c. We are determined to give the whole Lee Gardens area added dimensions, which is a very long-term project. We think long. That is why we need a lot of persistence to make things work.
Our long history here and our sustainable mindset are perfect ingredients to take on a long-term project like this. I always say real estate is a long game. For us, because we are really a landlord, we see ourselves being here for a very long time, and we do things, we curate, we build for the long run. We are not a develop and sell company. So what we are doing is providing the hardware and the content for our stakeholders. So what sort of hardware?
Quality buildings and related facilities throughout the portfolio. What sort of content? Unmatched experience and events, strong tenant and third-party partnerships, digital transformation, and many other things. Stakeholders, who are our stakeholders? The growing community in Lee Gardens, including our tenants, our neighbors, shoppers, and of course, members of our very popular loyalty programs. How do we curate unmatched experience?
Experience is on everyone's lips. We need to provide experience to draw crowds. It is not as easy as that, and it is expensive, particularly if it is not targeted. Just some of the unmatched experience that we can talk about, the Cathay/HSBC Rugby Sevens Carnival. This is the only street carnival that is officially part of the program, and we attracted over 50,000 people. Lee Gardens EGGssentially Art, I think that is one of Mark's pride and joy.
Yes.
We've actually wrapped that into this year's rugby program, which spanned three weeks and the EGGssentially by itself attracted 25,000 people. I wonder whether any of you have been to our [Non-English content] . It's very popular. We also have something called Absolutely Fabulous Children's Theatre. That attracts hundreds of children and families one weekend every month, and that becomes a habit-building event as well. I think we've had four events, Mark, and it's gone from not knowing what's happening to now you need to queue and you need to win the lottery to get in.
Thousands of pop-up stores during the year, bringing in new retail ideas and plenty of festive specials to attract people to come and experience and shop. Finally, in November, we have our very, very spectacular night parade, which is a collaboration with Standard Chartered Bank and Youth Arts Foundation. Thousands and thousands of people line the streets to see the puppets. These are two-storey-high puppets, and is a wonderful family occasion.
This is arts in the open air, which is wonderful in our neighborhood. We also have strong partnerships with tenants and third parties. This is a year where we focus, just like a bank having account managers for their clients. We actually focus on our tenants' business. We want to understand the business the way we understand our own, so that we know how to drive the business, and we make every effort to make their business perform, because they perform, we perform. We had Go Green Causeway Bay. We still have, isn't it, Mark?
Yep.
That roped in dozens of restaurants to promote healthy eating through some very, very attractive offers. On every Monday, we have a Green Monday where you buy one, you get one free. That's a pretty good deal. On the fashion side, we had a launch for Louis Vuitton. We had an amazing I.T new store in LG3, which is called Undefeated. I saw that, and I sent the WhatsApp image to my staff and I said, "Wow, this is the happiest day of my life." The queue went from Hysan Avenue to Leighton Road. So they will be launching these specials on a very regular basis.
Queues are always good. People always think they're missing out when they see a queue, so they queue, too. Nike also had a yoga day on our site. So we utilize our outdoor spaces for our tenants, and they really appreciate that. We, of course, value our loyal customers, as we are big believers in long-term relationships. We have two big loyalty programs. One is our VIP Club Avenue, by invitation only. High spenders, high-end.
We need to make them feel very, very special. We treat them the same way a private banker treats its private clients. We have expanded our lounge service, our VIP lounge service, this is in Lee Garden One, this building, from the basement area, which is designed like a study, with wood, with leather. It's very beautiful. To a slightly more airy, light first floor. So, we can actually have them enjoy this privilege. Of course, we need to provide very exclusive events and offers for them so that they feel special and they feel looked after because they spend a lot in our area.
For our general spenders, we have Lee Gardens Plus. We have very attractive limited time offers for tenants. They are going to be a very major platform for us to drive traffic and spending. We now have, from a standing start, about 50,000 members, and we intend to drive this further. This will also be a very, very good data gathering source for us to know exactly what our spenders likes and dislikes, what they buy, who they are. This will be very important for us. This leads us to talk about the growth of e-commerce. Dominance of mobile technology and prevalence of social media means we cannot be complacent when it comes to providing cutting-edge technology to our customers.
Coming very soon will be our area-wide Wi-Fi. It is high-speed Wi-Fi. We will be the only company that can actually even do that. It is in and out of mall Wi-Fi. We have our architect, Ken, sitting there, so if it does not work, you ring him up. This will link all our buildings on the streets and in the mall and in the shops, so you will have uninterrupted service. This is where we will widen the funnel, and we will be able to gather information from our traffic. We will also roll out our e-coupons for paperless shopping experience. We will have better interactive signage.
All this is really designed to have better ways to gather data, so that means that we are able to provide more improved shopping experience to our mall visitors, too. We will focus on big data analytics as well as better use of IoT and artificial intelligence and machine learning. We need to collect, retain, analyze, and predict the data so that we can understand our customer behavior. Everyone wants personalized. Everyone wants you to target them specifically. Unless we know that, we cannot be targeted.
Of course, if I am targeted, we will be able to target every dollar we spend to recruit them to make them spend more. We will be able to see the ROI on every single dollar spent, and this is what we need to do. Of course, we will be vigilant on data privacy, and we have implemented a whole range of safeguards. Apart from customers, there are many other stakeholders we care about. The people that make the community. To celebrate the 95th anniversary of Lee Gardens, we have rolled out a mainly social media campaign with 95 stories from Causeway Bay people.
Mark has even included dogs. We have 95 personalized stories about people who have lived here. The 80-year-old lady who has been selling knitting yarn. A whole range of very human. It is a very touching, human, warm approach because we genuinely care about the people, because we are from this area. We want to know who they are, what they do, and why they do things. We are neighbors, and we want them to feel part of this community. Hysan95 is and will become a platform to share our cherished history, our everyday lives, and our thoughts for the future.
I hope that you can follow our social media to help us celebrate ours and Hong Kong's history. Talking about neighbors, we are thrilled to have been a founding member of Lee Gardens Association. The association has blossomed in the last two years and now has 13 members, many of whom are old traditional stores that have been here for a long time, as well as quite a few new stores that recently moved in. These are our tenants, not our tenants. These are just people who want to join our programs. They understand that when we have events, when we have the night parade, when we have Rugby Sevens, actually they are part of our membership.
They actually have visibility and participation in what we do, so they can leverage on a much bigger platform. Apart from setting up events to boost foot traffic or helping to bring more creative ideas to the areas, landlords or shop owners, the association have been actively helping members' promotions through videos and social media. Another very exciting example, if you walk around our low-rise, you will see that some buildings is completely painted. Is that still on, Mark? We still have. For rugby, we actually invited graffiti artists.
We actually invited people to decorate our buildings. Now, you need to have this collaboration, this association with your neighbors so that they allow you to actually do things to their walls, to do things on the streets. This is part of expanding the inclusiveness. To recap, lastly, we believe Hong Kong is ever-changing. Located in the middle of Hong Kong Island's commercial area, we are smack in the middle of everything, and we are curating the content for our area with vision, courage, and persistence. This is our high-level helicopter view. Now, we will let Roger go through some figures for you.
Yes. Hi. Hello. Good afternoon. I will just spend a few minutes very quickly, go over high-level numbers, and then I will invite Ricky to share with you some of the more detailed operating highlights on each individual business unit. Again, for the corporate overall, I am sure you guys already look at it. Top line grew 6.8% year-on-year, and then on the recurring underlying is 4.3% year-on-year. On the reported profit, that reflects the valuation change. As you can see, this first six months of the year, we had a HKD 1.7 billion valuation gain, incorporated in our reported profits.
That primarily affect the valuation change we see from, first of all, the recovering retail market, as well as the continued possible rental reversion on office. As you can see again from this slide, last year, for the same period, that is the rental change on the mainstream retail part getting reflected in the valuation of our portfolio in the first half of the year. So basically, last year, first half is a valuation drop, whereas this year is a valuation gain, partly from the recovery of retail and the continued positive momentum on the office rental.
So we can talk more. By the way, the cap rate maintain the same between these two period. Mark, please next slide. That is a very simple slide, and Ricky is going to share more detail highlights with you. As you can see, the 2018 first half results, one of the area I want to highlight to you is the percentage mix contributed by each portfolio. With Lee Garden Three coming into the P&L, you will see that the office as a percentage of total contributions, it rise from 37.5% first half last year to now 42.9%. Whereas at the same time, the retail contribution shrink a little bit to just about half of it.
Finally, before we move on to the detailed one, again, a bit of the financial strength. On gearing, we maintain our low gearing at a 5.6% with a very stable debt profile. Fixed rate continue to be around three quarter of our debt portfolio, and average maturity shorten a little bit to four years, and with average cost of finance about 3.5%. We continue to maintain our investment-grade credit rating. That's A3 for Moody's and BBB+ for Standard & Poor's. That's a quick recap, and that is, again, a selective buildings in the cap rate.
As you can see, there's no change of them. For the Lee Garden Three cap rate in particular, basically, it's very aligned with those of the other grade A buildings. This again, which give you a five-year trend. As you can see from basically all metrics, we continue to make a stable but progressive improvement and increase in our portfolio. That's it for my part. Thank you very much. Next, maybe I invite Ricky to share with you some of the operating highlights.
Thank you, Roger. Good afternoon. Let me do some highlight on the operations side. Retail sales of Hong Kong growth 13.4%, and you can see that jewelry, watches, and clocks are still the driver. It's got 23.5% growth. But good for this half year is that the other major categories like consumer durable goods, food, alcoholic drinks and tobacco, clothing, footwear, and allied products all have very healthy growth, almost like from 7.5%- 13.7%, which reflecting the general bounce back of the retail sales for the first six months. For our retail portfolio, we have trimmed it for 2% to HKD 962 million. Occupancy stay as 96%.
Good side is the turnover rent improved over 100% to HKD 54 million, which reflect the good sales of the tenants. Overall neutral rental reversion for all the renewals, rent reviews, and new lettings. For the retail sales, we have a 25%, actually 26% growth year-on-year, outperformed over Hong Kong retail sales, which is 13% for the first six months. For the total foot traffic is 10% growth, with mainland visitors grew for 20%. About the trade mix enhancement, which reflect our commitment to meet and exceed our ever-changing customer needs and expectation.
Lee Garden Three has soft opened in April 2018. It is a modern lifestyle extension of our retail offerings. The major category, like the home furnishing and appliances, you see the name, like KitchenAid, HOMELESS, Tavolo Kids Living, Bo Concept, Sub-Zero and Wolf. They are very good name with quality product that we think is representing the high-quality lifestyle stuff. Fashion and accessory. The photos that Irene just showed about the long queue for Undefeated.
It is introduced by I.T and I.T is going to give us two more surprise by introducing two more brands in the next few months. Food and beverage. Starbucks flagship, Reserve . John Anthony, which I would like to highlight that this is a new concept by Maximal Concepts, which we think will draw a lot of young crowd, young bankers and a very different crowds of customer, particular for the late evening business. Personal care and beauty. Empress is another brand under the [Vida] Other than this, you should expect we should have more and more to come within the next few months, and the grand opening of LG3 will be the last quarter of this year.
Other than putting the focus in LG3, we are not lazy for the rest of the portfolio. For the rest of the portfolio, it's no more only about lifestyle. We think lifestyle, high brands, and everything should all be important element of our tenants mix. For example, luxury, Chaumet and The Spa by Valmont will all come to us. Food and beverage. 10 Shanghai, Ta-ke, Sake Diamond , n.o.t. Specialty Coffee, Hai-di-lao, they have all been opened and having very good response from the customers. We also changed Hysan Place sixth floor from Wan Chai to a few good younger brand names like Converse, Vans, Champion. They are more popular for the Gen XYZ. For kids, the Maggie & Rose, which is very good and originate from London, a very good kids concept, will open by November or December this year.
Other than newcomers, we also have the existing tenants who show their confidence and their buy-in to our community concept. For example, BVLGARI, VCA, Roger Vivier , Towngas, Adidas, Jack Wills, Lululemon. They either expand, relocate within our portfolio or having kind of major renovation to be stay longer and trying to grab more business in our communities. Marketing. Digitalization very related to our CRM program. The loyalty program show very good progress. VIP Club Avenue membership grew 40% with a sale growth of 30%.
LG Plus , which is going into a full loyalty program within this year, have double in membership number and the sales. Not really sale this year, but the redemption of all the offering from us. For business technology, with area Wi-Fi, our loyalty applications re-engineering, data analytics and AI, all under constructions. Our famous leisure promotions still got very good response this year, and we add on the Shopaholic Shopper promotion that cover the whole portfolio, on top of all the festive promotion, Chinese New Year, Valentine's Day, and Mother's Day.
Marketing, I think we named a few when Irene talk about the community concept. But you can see from the heading that we go from different angles to really build the marketing within our community. We go for tenants collaboration with all the names, LV, Cartier, BVLGARI, Piaget. They all have events with us. We also go out to find a third party like the Rugby Sevens, Lamborghini Weekend Drive, HSBC, Hang Seng Bank, China Merchants Bank. They all have the credit card promotion with us. Of course, as a community, wellness is so important for work-life balance now.
The Go Green campaign, Nike yoga, and then the very good event just mentioned, the egglet, the children theaters, the ballet, they are all very popular and really make our place a destination or build a habit for the customer that, "Well, why not go to Lee Garden area? There must be something happening there." Social media, you see we have 75% growth in WeChat. The Hysan95 have very good follower and people are expecting that Hysan95 program to bring more excitement by the end of this year. For office, we have 22% growth in turnover, so it come to HKD 820 million.
Occupancy is 95%, but when we talk about the commitment, office can be up to 97%, 98%. Positive rental reversion, rent review, and new letting across the portfolio. For the LG3, it showed the effect of having a good quality building in Causeway Bay. When the Central become decentral— Having this kind of decentralization of all these office occupiers, Causeway Bay will be a natural destination for its convenient location. When we have this kind of really Grade A building that can meet the I-bank standard, then you can see from the chart, 58% of LG3 is occupied by financial industries.
We are very advanced in trying to make our portfolio ready to accommodate the need of co-working, which become a very important facilities for modern office communities. Next slide, you can see Irene has mentioned we still have a very balanced tenants mix. For the first four categories, banking and finance, professional and consulting, insurance, and semi-retails, all add up to not more than 50%.
We are still having a very wide catchment, which we think will make our portfolio very unique, very different from Central or even Taikoo Place. For residential portfolio, we have a little drop of 3% to HKD 130 million. It's mainly due to the renovation of some of the units. Get a higher rental, but we are very careful in controlling the amount of new supply of renovated unit to meet the demand, because the demand is not that super strong for this kind of expensive apartments in Hong Kong.
Tai Po, we have just got the GBP approval, and the actual site work will start in two months' time. From the picture, you can see the view is wonderful, or the neighborhood is so green and low density. This will turn into a very luxury residential projects. That's all I want to highlight. Thank you very much.
Great. Thank you, Ricky. Now it is time for questions from the floor, and we appreciate it if you can let us know who you are and which company you represent. Please use the microphone when asking questions as they are going out live online. I will now hand it back over to Irene, Ricky, and Roger. Let us take a question.
Fan—
There you go.
Thank you, Irene, Roger, and Ricky. Fan Tso from Merrill Lynch. I have a couple of questions. First, on retail, you mentioned that mainland visitor was up 20% first half, and with the RMB started to weaken, I think, in the middle of June, have you seen any early signs of a retail slowdown, for example, for your tenant sales in July?
My second question is on office. There are some reports saying one of your key tenants at Hysan Place is seeking even cheaper alternative in Wong Chuk Hang. Can I confirm that there will be no impact on the Hysan Place office revenue until the end of the initial lease of the tenants? Given the rents in Causeway Bay also went up quite significantly, what is your view going forward on the office rental growth there? Thank you.
Maybe I will just answer the second question. The standard answer is we do not comment on individual tenants. But suffice to say, the impact will be minimal, as in we will not see a movement for the foreseeable future. There will be regular turnover of other tenants, but big tenants that you may be referring to, there will be no turnover on that. Roger, maybe we can talk about the—
Yes.
—the mainland.
Well, again, in terms of tenant sales, after the recent RMB performance, we so far. Because our tenants just closed their books for the month of July, and now today is August 7, and we are waiting for another week or two before we see the first report coming in. Again, with this as a backdrop, if you look at the seasonality of the tenant sales, normally each year around summer timeframe, there usually will be some sort of a reduction or momentum or something like that.
Yeah.
Soften a bit. The same thing we see is in some of the part of the Q2 as well. I guess we are also very keen to see what will be the impact, if any, on the tenant sales. Again, there is always a cycle apart from these individual events. As our business, we always try to arrange our trade mix to be a balanced one and to suitable for our target customer groups. That is also one of the key reason what we have been doing in the past 18- 24 months about revising our tenant mix.
Another question from the floor. Not yet? Well, we can take a question.
There's one—
Oh, sorry.
Thank you, management. Alvin from CLSA. Two questions. First, can you update on the Lee Garden Three occupancy for office and retail, and how many months is contribution for this year?
Yeah.
I think it will be full for your contribution for next year, but want to get a clear idea about how many months is the contribute for this year.
Oh.
The second question is more detail on the revaluation gain. You mentioned the revaluation gain mainly comes from the better retail portfolio, but if you keep the cap rates unchanged and your neutral rental reversion in the first half, I wonder where the revaluation gain from the retail comes from.
Okay.
Do you use the market rental or [inaudible]. Thank you.
Okay. Maybe let me take this up. For the Lee Garden Three, maybe I take a step back. Overall, as I explained before, 2018 is the first year with some ramping up. So it's a stop year in a sense. In 2019, we will see the full year contribution. Okay? So for 2019, we maintain our projection of a turnover of revenue above HKD 300 million- HKD 350 million, so it will still be the same. So let's assume 2019 is 100%. So what we expect to see in 2018, based on current estimate, is around 75%-80% of our full year capacity is going to be reflected this year in 2018, first of all.
Secondly, within the 2018 numbers, the split between first half and second half is roughly 40% versus 60%. So I guess, you probably can work out some numbers for your model. For LG 3, another point I want to highlight is the expenses. Because based on some of these Bloomberg estimates and some of the report I saw. Because this year we are getting our tenant in, so some of these expenses will be sort of like an initial setup or one-off, in particular the agency cost and some of this property management.
So as you can see again in the announcement in the first half, our profit margin ratio or the cost ratio on property expenses is around 11%-12%. So for the whole year, that percentage is going to edge up to around 14%-15%. So that's expected. Just as a background, back in the 2012, 2013 Hysan Place, that expense has actually edged up to about 17% during that stop period. Okay? So we expect similar pattern in the sense that the expense will edge up this year.
Then with the full year contribution coming in starting from 2019, we expect the expense ratio will go back to the more normalized, like 10%, 11%. So that's another point I want to highlight to you. In terms of the revaluation gain, again, you point out, spot on that the reversion is neutral. But the valuation is performed on the whole of the portfolio, not just those we sort of like transact or review or reprice basically. So every year is 1/3 . So I would say that the valuation change for the first half last year as well as first half this year reflect or given the coverage is the same, the change or the view from the valuer on the reversionary outlook of the rental market.
So basically, what it translate into at the interim last year, they were still having a not very positive view on the eventual recovery of the retail market. Whereas this year, at the interim dates, as compared to last year, quite positive reversion outlook. So I think that's kind of like consistent with the general market expectations.
And I think our office performance was very good as well, and that contributed quite a significant amount.
Anyone else? Shall we take a question from online? Now we have one from Justin Kwok from Goldman Sachs. It's actually a three-parter. With co-working space being highlighted as one of the key initiatives for your office tenant reshuffling exercise, what's the percentage of space in your portfolio being leased to these operators? Second part is, what's the target level of space to be allocated to these operators? And third, would you intend to JV with them and/or start your own co-working operator?
Maybe I will have a stab at this. Right now it's approximately 6% of our office portfolio is co-working space, and we have gone from traditional service office, which were already in our portfolio, to inviting two co-work operators. One is Spaces, which is in LG3, and they have made LG3 their flagship. In fact, we held our Board meeting there this morning. We like to use our tenant space to test out
The hardware and the software. The other one is theDesk, which is a different price point again, and we have placed them into our One Hysan Avenue and Leighton Centre. We have actually expanded our co-work percentage quite significantly this year in recognition of a sector which we believe is here to stay. Now, as to expanding it, different area, as in different location and different portfolio, will probably have a different percentage.
If you look at the overall percentage, it's a big number right now, and it's growing. Are we going to match that? Probably not, because it really depends on the price point and on the needs of our tenants, as well as having the space. Having LG3 come online was actually a very fortunate thing, and we were able to release a significant amount of spaces. As to how we want to look at this sector, we are looking at it. We are looking at a whole range of, as I said, from JV to owning to just having a tenant.
We haven't landed on a solution because it is a fast-changing market. I think the people, the players who have jumped into the market, and there are many of them, are testing different models themselves. I think it's watch this space. We believe that it's an important sector, and it's very important office offering because when a traditional tenant comes in, let's say a professional services or a bank, they actually are attracted to a building which has co-work space because this allows them to flex up and flex down.
These days, you do a space audit. If you used to use two floors, I can promise you, your space manager, your real estate people will not allow you to move to a place which is the same space, never mind bigger. You will be asked to downsize from two floors to one floor and a half, because everyone is thinking about cost and productivity and reducing their fixed costs. Having a nearby credible co-work offering is a terribly important advantage for a landlord.
Any other question? Yep.
Thank you, management, for a very good highlight on helicopter view of the company's strategy. This is Hildy from Morgan Stanley. I want to understand, with the backdrop of all these changes on the technology and generation changes, how do you feel about the retail market outlook on your portfolio in the coming one year or maybe three years? How would you want to change and to cater the shift in demand? That is point one. Something housekeeping, what do you think about the rental reversion going forward in the coming half-year and one year? Thank you very much.
I will leave the rental reversion to Roger, and I will try to give a view on where retail is heading. From Ricky's presentation, you will see that we are not just emphasizing lifestyle. We have used LG3 as an ignition key to actually emphasize and extend our lifestyle. It is really much more of a staccato. It is to say, use LG3, which actually has no high brands in it, only lifestyle, only interesting F&B. That actually has ignited the rest of our portfolio. It was 1 + 1 = 3 kind of effect.
So that highlighted the need for lifestyle. However, if you look at the rest of the presentation, you will see a lot of movement in our high brands, and the movement is actually people who want to go deeper and bigger. Now, they may not go bigger in the sense of expanding, doubling the shop size. They are actually going bigger in terms of the treatment area of their offering. So I always think about the high brands as they are as under threat as the landlords. They are being disintermediated as well. So they actually need to go into the online business.
They need to actually look at their own DNA. Now, some will always have a very specific DNA, but even with that, if you look at Dior, they have actually gone streetwear. If you look at their store in Landmark, it is beautifully wrapped in almost graffiti, streetwear, funky, young, approachable. But it does not mean that they are lowering their price point. It does not mean that they are actually changing their brand. They are actually repositioning, and we call it new classic. So I think a lot of the high brands are also changing.
As a landlord, if we do not actually respond to that, we will be completely disintermediated. We actually need to make sure that we have the energy and the vibrancy for them to feel they want to be part of us as well, because we actually are a progressive landlord. We actually have very interesting shops and flagship, and no one else in Hong Kong has shops like Undefeated, which is an I.T offering, and they will have two more surprises coming. High brands actually quite like that, too. They want to be part of a vibrant neighborhood.
We are not going to say no more high brands. I think there is definitely room for high brands. If you look at our Club Avenue, our VIP spenders, they are spending big on high brands, be it apparel, be it jewelry and watches. There is definitely room for that, but I think it has to actually be repositioned somewhat. You can see in the last two years or three years, when times were more difficult, high brands actually repositioned and contracted.
Brands who had, let us say, 15 stores on Hong Kong and Kowloon side actually needed to come back to 10 stores. And we actually had to sing for our dinner. We actually have to show them. You actually have to be in our location. That is not easy because we are competing with some very big landlords, some big landlords who have a lot more leverage. They have lots of malls in China, so arm twisting is a bit easier for them. We have to really differentiate ourselves.
They have to want to be with us. Those stores, happily, we have done very well, but those stores who have contracted, now with the revival of retail sales, I cannot see too many of them going from 10 back to 15. They will not. They have different ways of responding to the change in the market. I mean, a lot of them are going online as well. They actually need to look at their own productivity as well. So net-net, there will be a place for them. They will also reposition, and we actually have to make our area a must-be-here kind of proposition for them.
Okay. It has been a long day for everyone. Thank you very much for coming, and we look forward to seeing you guys again next year.
Thank you very much for coming.
Thank you.